BEIJING (Reuters) – Chinese policymakers are readying measures to support an economy jolted by a coronavirus outbreak that is expected to have a devastating impact on first-quarter growth, policy sources said.
The sources said the government is debating whether to lower the planned 2020 economic growth target of around 6 percent, which many private sector economists see as well beyond China’s reach.
With the death toll from the virus epidemic climbing to over 420 and risks to growth mounting, China’s central bank is likely to lower its key lending rate – the loan prime rate (LPR) – on Feb. 20, and cut banks’ reserve requirement ratios (RRRs) in the coming weeks, said the sources who are involved in internal policy discussion.
“Currently, monetary policy is being loosened, but the central bank will follow a step-by-step approach and watch the virus situation,” said a policy insider.
The People’s Bank of China (PBOC) has already pumped in hundreds of billions of dollars into the financial system this week as it attempted to restore investor confidence and as global markets shuddered at the potentially damaging impact of the virus on world growth. In the past two days, the PBOC has injected 1.7 trillion yuan ($242.74 billion) through open market operations.
In order to minimize job losses, China’s stability-obsessed leaders are likely to sign-off on more spending, tax relief and subsidies for virus-hit sectors, alongside further monetary easing to spur bank lending and lower borrowing costs for businesses, according to the policy insiders.
“We have policy reserves and will step up policy support for the economy. The most urgent task is to put the virus outbreak under control,” said a source who advises the government, who spoke on condition of anonymity.
Support measures will be concentrated on the retail, catering, logistics, transportation and tourism sectors, which are likely to be hit hard and are especially vulnerable to job losses, they said.
Increased government spending could push up the annual budget deficit relative ratio to 3% this year from 2.8% in 2019, and local governments could be allowed to issue more debt to fund infrastructure projects, the policy insiders said.
Policymakers deem targeted measures as more effective than unfettered credit easing at this stage, given that the outbreak has weighed on factory and investment activities due to the extended holiday in some regions, the insiders said.
The Lunar New Year holiday has been effectively extended by 10 days in many parts of China including powerhouse regions such as Shandong province and the cities of Suzhou and Shanghai, while transport networks have been curtailed to curb the spread of the disease. More than 40 foreign airlines have suspended flights to China.
“It’s necessary to step up policy support for the economy but we don’t need to use strong stimulus at this stage,” said one of the policy insiders.
While Beijing has rolled out a series of support measures in the last two years, mainly in the form of higher infrastructure spending and tax cuts, leaders have pledged they will not embark on massive stimulus like that during the 2008-09 global crisis, which saddled the economy with a mountain of debt.
The PBOC has cut the RRR, or the amount of cash that banks must hold as reserves, eight times since early 2018, with the latest reduction taking effect on Jan. 6. It has also lowered its key lending rates modestly since August.
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China’s economy grew 6% in the fourth quarter, bringing 2019 expansion to 6.1% in 2019, the weakest in nearly three decades as demand at home and abroad weakened in part due to the bitter Sino-U.S. trade war. Growth of about 5.6% this year is seen enough for meeting the long-term gross domestic product target.
This year is symbolically crucial for the ruling Communist Party to fulfill its goal of doubling GDP and incomes in the decade to 2020, turning China into a “moderately prosperous” nation.
Chinese leaders face a more challenging job than they did during the Severe Acute Respiratory Syndrome (SARS) outbreak in 2002-03, as the economy is now driven more by consumption and services, and growth has been on a downward trajectory.
The virus has killed 425 and infected 20,438 in China, most of them in central Hubei province, the epicenter of the outbreak.
“It’s hard to see a turning point in the outbreak. First-quarter GDP growth could dip below 5% and the impact may persist in the second quarter,” said Wang Jun, chief economist at Zhongyuan Bank.
Many private economists have lowered their growth outlook for China, with Louis Kuijs at Oxford Economics forecasting 5.4% growth in 2020, compared with 6% previously.
Tao Wang, China economist at UBS, predicted first-quarter growth could dip to 3.8%, and 5.4% for the whole year.
During the SARS outbreak, China’s growth slowed to 9.1% in the second quarter of 2003 from 11.1% in the first, before rebounding to 10% in June-September, bringing the full-year expansion to 10%.
(Reporting by Kevin Yao; Editing by Shri Navaratnam)
TORONTO – Canada’s main stock index was essentially unchanged Friday, while U.S. markets were mixed to end the week, with the Dow ekeing out a new record high.
The S&P/TSX composite index closed up 1.28 points at 23,867.55.
In New York, the Dow Jones industrial average was up 38.17 points at 42,063.36. The S&P 500 index was down 11.09 points at 5,702.55, while the Nasdaq composite was down 65.66 points at 17,948.32.
The Canadian dollar traded for 73.72 cents UScompared with 73.73 cents US on Thursday.
The November crude oil contract was down 16 cents at US$71 per barrel and the November natural gas contract was up 12 cents at US$2.72 per mmBTU.
The December gold contract was up US$31.60 at US$2,646.20 an ounceand the December copper contract was down a penny at US$4.34 a pound.
This report by The Canadian Press was first published Sept. 20, 2024.
OTTAWA – Bank of Canada governor Tiff Macklem says there is a lot of uncertainty around how artificial intelligence could affect the economy moving forward, including the labour market and price growth.
In a speech in Toronto at the Economics of Artificial Intelligence Conference, the governor said Friday that the central bank is approaching the issue cautiously to get a better understanding of how AI could affect its job of keeping inflation low and stable.
“Be wary of anyone who claims to know where AI will take us. There is too much uncertainty to be confident,” Macklem said in prepared remarks.
“We don’t know how quickly AI will continue to advance. And we don’t know the timing and extent of its economic and social impacts.”
The governor said AI has the potential of increasing labour productivity, which would raise living standards and grow the economy without boosting inflation.
In the short-term, he said investment in AI is adding to demand and could be inflationary.
However, Macklem also highlighted more pessimistic scenarios, where AI could destroy more jobs than it creates or lead to less competition rather than more.
The governor called on academics and businesses to work together to shed more light on the potential effects of AI on the economy.
“When you enter a dark room, you don’t go charging in. You cautiously feel your way around. And you try to find the light switch. That is what we are doing. What we central bankers need is more light,” he said.
This report by The Canadian Press was first published Sept. 20, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
